Falling dollar could be good news

By Daniel Tencer

A declining U.S. dollar has pushed the złoty lower against European currencies in recent months, but economists say that the depreciated złoty will help Polish exports, and could speed up the country's inevitable economic - and psychological - move away from the dollar and towards the euro.

"The fall of the dollar has resulted in a weaker złoty because it is more strongly attached to the dollar," said Mateusz Szczurek, senior economist at ING Bank.

The greenback fell close to four-year lows against the euro last week, and ended the week some 20% below its average level for 2002. The euro's rise has been even more pronounced: the currency has risen a whopping 36% against the dollar since its all-time low two years ago.

The result could benefit both Polish exporters and consumers, says Krzysztof Rybiński, chief economist at BPH PBK. "A weaker dollar and stronger euro is good for Polish terms of trade, because (the country has) a much bigger euro share of exports. A weak dollar will make imports cheaper, as Poland imports commodities that are priced in dollars."

However, Marcin Mróz, senior economist at SG Bank, warns that the fall of the dollar could have some negative impact because of the country's propensity to think and trade in dollars rather than euros.

The weak American currency has highlighted the country's ambivalent position on the world currency market. With EU accession imminent and 30% of domestic exports going to Germany, the country's reliance on the dollar - which extends even to internal trade, such as the commercial real estate market - is becoming increasingly less practical.

"Internal trade in the dollar will have to change, though this is largely a psychological phenomenon," Rybiński said. "The use of the dollar is a cultural thing because of Poland's ties to America."

Most economists agree that the country's unique position as the most "dollarized" central European economy will begin to change soon.

SG Bank's Mróz added that the EU referendum next month would be a landmark moment in the evolution of the country's currency.

"We may see the złoty on the stronger side in coming months, especially after the EU referendum," he said.